Its cold out there.
By out there, we mean pretty much anywhere in the U.S. north of Brownsville, Texas. Check out the U.S. weather map. Temperatures range from a chilly-for-Florida 49 degrees in Miami and a This isnt why we moved to Texas 23 degrees in Dallas, down to a Do we even have a weather map color for this? 27 degrees below zero up in Montana. Now thats cold.
- Associated Press
- Keeping warm in Palm Beach
While were all freezing, natural-gas investors are cheering (or perhaps doing cartwheels). Gas prices closed above $6 per million BTUs yesterday for the first time in a year as all that frigid weather drives up demand for gas, which heats more than half of U.S. homes.
This morning, government data showed that the U.S. pulled 153 billion cubic feet of gas out of storage last week, triple the draw down in the same week last year. Expect an even bigger number next week, which will reflect this weeks brutal cold.
So is it time to toss out the gas glut commentary along with the Christmas tree? Not so fast. For one thing, storage levels remain 11% higher than normal for this time of year, and a couple cold weeks arent going to do much to change that.
Moreover, as cold weather pushes up gas prices, that will actually surpress demand for non-heating uses of gas. At $6 per million British thermal units, gas no longer looks cheap compared to coal, the way it did when prices dropped below $3 in September. Jefferies analyst Subash Chandra figures natural gas has given back all of the 3 billion cubic feet of daily demand that it took away from coal earlier this year. That helps explain why gas prices are actually trading down a few pennies this morning.
Of course, thats nothing more than the law of supply and demandnot exactly a new principle. But its not the way natural gas markets have worked in recent years. Instead, prices tended to spike whenever demand picked up due to supply fears, as producers struggled to pump enough gas. They would catch up just in time for demand to fall, flooding the market and driving prices back down. The result was a price roller coaster, with frequent spikes and plunges.
The huge gas discoveries of the past few years have changed all that. Now theres plenty of gas, and producers can quickly ramp up and down drilling in response to shifts in demand. The result, at least in theory: price stability. Gas has spent most of the past year bouncing between $3 and $6 per million BTUsa tame year compared to the $5.50 to $13.50 swings of 2008.
Will it last? More and more market-watchers are saying yes. Of course, those same experts once predicted $200 a barrel oil. So buyer beware.